USD Partners LP Announces First Quarter 2023 Results

Source: www.gulfoilandgas.com 5/3/2023, Location: North America

USD Partners LP (USDP) (the “Partnership”) announced its operating and financial results for the three months ended March 31, 2023. Financial highlights with respect to the first quarter of 2023 include the following:
- Closed on the sale of the Casper Terminal to a third party for $33.0 million in cash, subject to customary adjustments
- Generated Net Income of $2.0 million
- Reported Net Cash Used in Operating Activities of $0.6 million, Adjusted EBITDA(1) of $3.3 million and Distributable Cash Flow(1) of ($1.6) million

“We were pleased to close on the sale of the Casper Terminal this quarter, as that was the first phase of our plan to secure the Partnership’s liquidity position as we work through the current re-contracting cycle,” said Dan Borgen, the Partnership’s Chief Executive Officer. “We continue to be encouraged with advanced discussions we are having with multiple customers regarding our DRUbit™ by Rail™ network, and we remain optimistic that these discussions could lead to long-term take-or-pay commitments to provide safer and economically beneficial Canadian crude egress relative to pipeline alternatives.”

“In further support of the Partnership’s liquidity position, the Board of Directors of the Partnership’s general partner has made the decision to suspend the Partnership’s quarterly distribution and to utilize free cash flow to support the Partnership’s operations and to potentially pay down debt,” continued Borgen. “We believe this proactive measure, coupled with management’s review of strategic alternatives, as well as our unwavering commitment to continue to provide safe and reliable operations at efficient cost, will best position the Partnership for both re-contracting and for the refinancing or replacement of our senior secured credit facility later this year.”

Casper Terminal Sale
On March 31, 2023, the Partnership completed the sale of the Casper Terminal to a third party for consideration of approximately $33.0 million in cash, subject to customary adjustments. The Partnership used approximately $19.1 million of the net proceeds to repay borrowings under the Partnership’s credit agreement and retained the remaining proceeds to support general Partnership purposes, as discussed in more detail below. As of April 30, 2023, the Partnership had borrowings of approximately $195.9 million outstanding under its revolving credit facility.

Partnership’s First Quarter 2023 Liquidity, Operational and Financial Results
Substantially all of the Partnership’s cash flows are generated from multi-year, take-or-pay terminalling services agreements related to its terminals, which include minimum monthly commitment fees. The Partnership’s customers include major integrated oil companies, refiners and marketers, the majority of which are investment-grade rated.

The Partnership’s revenues for the first quarter of 2023 relative to the same quarter in 2022 were lower primarily as a result of lower revenues at the combined Hardisty Terminal due to a reduction in contracted capacity. Revenues were also lower at the combined Hardisty terminal due to an unfavorable variance in the Canadian exchange rate on the Partnership’s Canadian-dollar denominated contracts during the first quarter of 2023 as compared to the first quarter of 2022. Revenue was lower at the Stroud Terminal due to the conclusion of the Partnership’s terminalling services contracts with its sole customer effective July 1, 2022. Partially offsetting this decrease in revenue was a slight increase in revenues at the Partnership’s Casper Terminal, due to an increase in throughput in the current period as compared to the prior year period.

The Partnership achieved lower operating costs during the first quarter of 2023 as compared to the first quarter of 2022. Selling, general and administrative costs (“SG&A costs”) associated with the Hardisty South entities were lower, as discussed in more detail below. The Partnership also experienced lower pipeline fee expense which is directly attributable to the associated decrease in the combined Hardisty terminal revenues previously discussed, as compared to the first quarter of 2022. In addition, subcontracted rail services costs were lower due to decreased throughput at the terminals. Depreciation and amortization expenses were lower in the first quarter of 2023 as compared to the same period in 2022, primarily associated with the decrease in the carrying value of the assets at the Casper Terminal resulting from the impairment that was recognized in September 2022. In addition, the Partnership discontinued the depreciation and amortization of its Casper Terminal assets during the current quarter, as the assets were classified as held for sale in January 2023.

First quarter 2022 SG&A costs included service fees paid by Hardisty South to the Sponsor related to a services agreement that was in place with the Sponsor prior to the Partnership’s acquisition of Hardisty South. Upon the Partnership’s acquisition of Hardisty South, the services agreement between the acquired entities and the Sponsor was terminated and a similar agreement was established between Hardisty South and the Partnership. This resulted in the service fee income being allocated to the Partnership, and therefore offsetting the expense in Hardisty South for periods subsequent to the acquisition date of April 1, 2022. Partially offsetting the decrease in SG&A costs discussed above were transaction costs incurred during the first quarter of 2023 related to the Partnership’s divestiture of the Casper Terminal, partially offset by expenses incurred in the first quarter of 2022 associated with the Hardisty South acquisition, with no acquisition expenses incurred in 2023.

The Partnership generated net income of $2.0 million in the first quarter of 2023 as compared to net income of $7.5 million in the first quarter of 2022. The decrease is primarily due to the factors discussed above coupled with higher interest expense incurred during the first quarter of 2023 resulting from higher interest rates and a higher balance of debt outstanding during the quarter, as compared to the first quarter of 2022. The Partnership also had a non-cash loss associated with the Partnership’s interest rate derivatives recognized in the first quarter of 2023 as compared to a non-cash gain during the comparative period. Partially offsetting this reduction in Net Income, the Partnership recognized a lower foreign currency transaction loss in the first quarter of 2023, as compared to the first quarter of 2022.

The Partnership had Net Cash Used in Operating activities of $0.6 million for the three months ended March 31, 2023 as compared Net Cash Provided by Operating Activities of $9.2 million for the prior year period. The decrease in the Partnership’s operating cash flow resulted from the factors already discussed. Net Cash Used in Operating Activities was also impacted by the general timing of receipts and payments of accounts receivable, accounts payable and deferred revenue balances.

Adjusted EBITDA for the first quarter of 2023 decreased by 67% when compared to the same period in 2022 due primarily to the factors discussed above. In addition, Adjusted EBITDA for the quarter included the impact of approximately $1.9 million of transaction costs associated with the sale of the Casper Terminal. Distributable Cash Flow (“DCF”) decreased to ($1.6) million for the current quarter and also includes the impact of higher cash paid for interest and taxes when compared to the prior year quarter.

As of March 31, 2023, the Partnership had approximately $10.8 million of unrestricted cash and cash equivalents and undrawn borrowing capacity of approximately $60.0 million on its $275.0 million senior secured credit facility, subject to the Partnership’s continued compliance with financial covenants, and borrowings of $215.0 million outstanding. Per the terms of the amended credit agreement, the Partnership’s available borrowings was limited to 5.50 times its 12-month trailing consolidated EBITDA. As such, the borrowing capacity and available borrowings under the senior secured credit facility, including unrestricted cash and cash equivalents, was approximately $41.0 million as of March 31, 2023. As previously stated, in April 2023, the Partnership used approximately $19.1 million of the net proceeds from the sale of the Casper Terminal to repay borrowings under its senior secured credit facility and retained the remaining proceeds to support general Partnership purposes. As of April 30, 2023, the Partnership had borrowings of approximately $195.9 million outstanding under its senior secured credit facility and unrestricted cash and cash equivalents of approximately $8.8 million. The Partnership was in compliance with its financial covenants as of March 31, 2023.

The Partnership’s senior secured credit facility expires on November 2, 2023. The Partnership is in active discussions with the administrative agent and other banks within the lender group, as well as other potential financing sources, regarding the possible extension, renewal or replacement of the senior secured credit facility.

On May 3, 2023, the Board of Directors of the Partnership’s general partner, approved the suspension of its quarterly distribution in order to support the liquidity position of the Partnership. In addition, the Board of Directors approved the engagement of financial advisors and counsel to assist the Board and management with evaluating and pursuing strategic options and alternative financing sources in light of the November 2, 2023 maturity of the Partnership’s senior secured credit facility.


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